Gold News

Gold ticks lower in Europe, still tracking oil

Gold ticked lower as the European session began today after falling sharply at the start of Asian trade.

Tokyo opened to knock gold 0.5% lower for Dollar and Yen buyers. But gold was little changed for European investors as both the Euro and Sterling dipped on the currency markets.

"Gold's tracking oil very closely," says Peter Tse, chief precious-metals trader at ScotiaMocatta in Hong Kong. "With oil prices weak and the Dollar strong, it's difficult for funds to re-emerge."

Crude oil fell to an 18-month low of $54 per barrel on Tuesday, before turning higher on forecasts of a cold snap in the north-eastern United States. Copper turned higher too, bouncing off an 8-month low after the London Metal Exchange said copper stockpiles fell 1.2% yesterday.

Mining giant Codelco also warned Tuesday of rockslide risks at its largest mine in Chile, where a cave-in last year cut production.

Even so, "the trend [in gold] is bearish and with oil providing no support we may see gold falling to $580," reckons one senior gold trader in Hyderabad, India. Most other analysts, however, put strong support at $600 an ounce – a level they believe would invite strong physical buying by Asian jewelers.

Gold hit $615 per ounce late in New York, a level it touched again just before Tokyo opened for business Wednesday. But "gold is a little bit heavy at the moment," as Darren Heathcote of Investec Australia in Sydney notes, and the rebound quickly sank.

Investec now expects gold to trade in range between $606 to $615 today. Analysts at Scotia Mocatta forecast a range of $608 to $618.

They also note that gold broke above its 100-day moving average on Tuesday. The 200-day average sits up at $618.70 per ounce, and would offer resistance according to the bank's analysts.

"The market tested the bottom around $606 yesterday but then rebounded," said a dealer in Singapore earlier. "So I guess, what we [saw] today is technical buying. Physical buying has cooled off [at these levels]."

In Asian equity markets, the SET in Bangkok has recovered slightly after dropping 2.7% on Tuesday's news that the military government will impose new controls on foreign investors. It knocked the Thai market 16% lower with a hare-brained currency control scheme in December which it swiftly reversed. Now the junta is going to cap foreign ownership of stocks at 50%.

''If this government's aim is to scare away foreign investors, then I think they are doing a very good job here; they have the perfect strategy in place to do this,'' says Lance Depew, portfolio manager at Quest Capital, a $250-million fund manager. Both Citigroup and HSBC today downgraded Thailand in their advice to clients.

But the Thai government's clumsiness is matched by Hugo Chavez in Caracas. The Venezuelan president said yesterday he is going to nationalize the biggest phone and power companies. The Caracas Stock Exchange dropped nearly 19% on the news. Bond prices also sank as investors fled the market.

Back in the Western hemisphere, data due today include UK and US trade deficits for November, plus US weekly jobless claims. Both the Bank of England and European Central Bank (ECB) are meeting to vote on interest rates – decisions due tomorrow.

Neither is expected to jump yet, but "if the ECB calls for vigilance," says a currency strategist quoted by Reuters, "this would make a Eurozone February rate hike more likely which is a risk for Sterling."

The risks to Sterling didn't stop central banks filling their vaults with Sterling bonds and notes last year. Might they come to their senses in 2007...? Click here to read more now...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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